News from and on Japan, October 2018

From Yokota to Amsterdam … and back, Abe & Xi, on wind and nuclear energy, Japan’s lost generation and the Khashoggi killing’s impact on the Tokyo Stock Exchange

From Tokyo: news on Japan was dominated by developments as varied as the meeting between Messrs Abe and Xim, the killing of Jamal Khashoggi that drove Softbank and the Nikkei down, the debate in Japan’s parliament if the country is to allow more foreign workers in the country and a new quarrel between South-Korea and Japan.

But there is more to note, including an analysis of Japan’s lost generation, the return of nuclear energy in Japan and … a truly original Dutch – Japanese project to in a region that not many Dutch people will know: Shimane Prefecture.

Politics:

PM Abe’s state-visit to China on October 26 with a delegation of over 1.000 business people was a highlight last month. And au lieu of the famous reluctant handshake in 2014 by President Xi with a pained, puckery expression, it was all smiles this time. With the looming trade war between the USA and China, Japan is a crucial supplier of machine tools. And for lovers of hard facts: Japan sold to China 35.2 percent of all the goods they exported to the rest of Asia in the first seven months of this year. And that was a 10.6 percent increase from the year earlier. For all of 2017, the Japanese export business to China literally flourished, soaring 20.5 percent after a 6.5 percent decline in 2016 (source CNBC). Interestingly enough, also Japan’s “development aid” to China stopped with this visit. “In the nearly 40 years since Japan began funneling foreign aid to China, it has provided JPY 3.65 trillion or EUR 28 bln to support China in infrastructure, humanitarian projects and environmental protection. In 2007, Japan ended its yen loan program, which represented about three‐quarters of its aid to China. What remained were small‐scale grants made to local communities for individual projects” – and now that also stopped (NYT).

But it isn’t all quiet on the Eastern Front: on October 30 South Korea’s Supreme Court ruling on a contentious wartime labor case involving Nippon Steel & Sumitomo Metal looks certain to extend beyond the Japanese steelmaker: roughly 70 Japanese companies in South Korea are at risk of losing similar court cases. “it is high time Japan raised its diplomatic game. For starters, Tokyo should accept the Korean Supreme Court ruling rather than lashing out as if an international body can intervene and overturn the judgment. Japan needs to realize, as Germany has long done, that below the legal element, these controversies have huge emotional and political depths”, writes William Pesek in the Nikkei. “My point here is not to compare Imperial Japan’s leaders with Adolf Hitler’s Nazis. But the historic tensions are getting in the way of the future. Something has been terribly lost in translation. Japan’s government feels it clearly and adequately atoned for the 1930s and 1940s. Yet the outside world has never quite warmed to that position.” Read Ian Buruma’s The Wages of Guilt, is my additional comments.

Much ado about the question if Japan is to be an immigration country – or not? There were tough debates in the Japanese Diet / parliament last month on PM Abe’s proposal to allow more foreign, mostly unskilled workers in, and opposition also came from his own party. The revised law would create two new visa categories for foreigners in sectors with labor shortages, writes Nikkei. “While not spelt out, they are expected to be more than a dozen, from farming and construction to hotels and nursing care. Justice Minister Takashi Yamashita on Thursday ruled out a numerical cap, but media said 500,000 blue-collar workers could be allowed in over time, up 40 percent from the 1.28 million foreign workers now forming about 2 percent of the workforce. Workers in the first visa category must have a certain level of skills and Japanese language ability. They would not be allowed to bring family members for a stay of up to five years. But those with higher skills, in the second category, could bring family and eventually get residency.”

Economy:

Investors in listed stock, attention please: “Japan – land of the rising investment prospects”, writes David Stevenson, the Adventurous Investor columnist on the Weekend FT for more than 8 years and who is a widely recognised expert in the world of alternative investments and ETFs. “Look at the universe of cheap value stocks. Japan now dominates any list of these, especially those containing stocks with oodles of cash on the balance sheet and low share prices. More than 50 per cent of Japanese companies now have more cash than debt. Within the smaller-cap universe of stocks tracked by MSCI, more than 34 per cent have net financial value (cash plus investments less debts) in excess of 30 per cent of their market cap, with 19 per cent of the universe having a ratio of 50 per cent or more.” And that is not all according to Mr. Stevenson. “Moving back to the bigger picture, Japan might even prove to be approaching a safe harbour if the global economy does wobble. While most other major developed world equity markets have taken quantitative easing and used it to increase corporate leverage, local Japanese businesses have decreased leverage while also focusing on local growth markets in Asia and especially China.” (Financial Times).

Last week I assisted in Tokyo a Dutch supplier to the offshore wind industry, and this article in the Offshore Wind Journal explains why Japan is to be a big market. “Japan wants to decarbonise its economy by 2050 and offshore wind power is expected to play a key role . … However, Japan needs around 10 GW of offshore wind capacity to help meet the government’s 2030 target. The Japan Wind Power Association predicts 6 GW of fixed turbine wind farms and 4 GW of floating turbine wind farms by FY2030.” That is a tall order.

But part of “de-carbonizing” the economy is also the return of nuclear power. “Japan is on track to have nine reactors running in the near future”, writes Japan Today. With 54 nuclear reactors in operation before March 11, 2011, now only three have restarted. “Every month a nuclear reactor sits inoperative, the utility company spends JPY 3.5 billion or EUR 29 million for additional fuel at its conventional power plants. Shikoku has also spent JPY 190 billion on safety upgrades to meet stricter rules set by the Nuclear Regulation Authority. The article also indicates the perks for the local communities that have a nuclear power plant in their vicinity.

Corporate:

What is the relation between the killing of journalist Jamal Khashoggi and the Tokyo stock exchange? When it became clear that the Saoudi’s were in trouble with this brutal act, the Nikkei lost and heavy weight Softbank, that manages the USD 93 bln Vision Fund (with USD 45 bln under management from the Saoudi Sovereign Wealth Fund), saw its shares drop with no less than 8%. Moreover, the Saoudi’s seems to have promised another USD 45 bln to Mr. Son’s fund – and now all kind of questions are raised if Mr. Son should stick to the cooperation with Ryad. Ant there is more trouble for Softbank at the horizon as its telecom rivals are eying a drastic price cut (CNN).

FUJIFILM, that has been fighting a bitter battle with American ultra-capitalists Carl Icahn and Darwin Deason over XEROX, won in court and said that “we are very pleased with the New York State Appellate Court’s decision, which ends the lawsuit against FUJIFILM in its entirety and validates our position that Fujifilm acted properly and negotiated with Xerox at arms’ length for the transaction that was unanimously approved by the Boards of both companies.” FUJIFILM’s attempt to acquire control over the XEROX company seems to be a complicated deal without cash, so who is the better capitalist, FUJIFILM or Messrs. Icahn and Deason?

DUJAT member Tanita is a company that does not cease to surprise me – in the most pleasant sense. The company is a world leader in precision electronic scales. With almost 50% of its domestic market share, the name Tanita is a household name in Japan. And beyond – and not only for scales, but for all kind of health measuring equipment. I have been visiting the Tanita Shokudo (cafeteria) in Tokyo, where you enter measuring your body weight, fat etc. on a Tanita machine, followed by an advise how much calories and vegetables you eat best (for me it was 73 grammes rice and 45 grammes vegetables). Somehow they figured out the the ideal time for your meal is something like 23 minutes. Now Tanita’s aim is to enter data driven health services (where it already pioneered 15 years ago). “These health management services became profitable four years ago”, Mr Tanida says in the Japan Times, “but even now they account for less than 10 per cent of Tanita’s annual sales of JPY 16.1 bln (EUR 140 mln). Mr. Tanida also concedes the limits of Tanita attempting to go global on its own, saying the company is seeking to collaborate with international groups such as GE Healthcare and Philips. It would also not rule out tie-ups with overseas health tech start-ups.

Society:

Thorough analysis in the Nikkei about Japan’s “lost generation” of workers (yes, you read it well: it is not about a lost generation of youngsters or the unemployed) and this seems to be the root of the question on how to create inflation and growth in Japan. “In our company, there just aren’t any positions for us to get promoted to,” said a 40- year-old man working for a major financial institution in Tokyo to the Nikkei. He and colleagues around his age frequently complain about their dim prospects for earning promotions and raises, he said. “Normally, when workers see no avenue to promotion, they have the option of seeking a new job with a better salary. But this, too, is a tall order in Japan, due to the country’s unique hiring practices and wage systems. Companies typically prefer to hire new graduates, leaving few openings for older workers. Yet age discrimination is rarely if ever discussed.”

Less babies in Japan, but more pets. Japan’s pet industry really took off in the 2000s; since 2003 there have been more pets than humans under 15 in Japan. The absolute number of pets is now falling, but the industry is still growing healthily, writes the Economist. Pets in expensive jeans, T-shirts, socks. Dogs can take swimming classes, but for those that don’t like getting wet, there is the option of a 30-minute session on the balance ball for 4,000 yen = EUR 34. If Rover needs to “relieve tension” over a lost bone or a cat that got away, Wanwan (Woofwoof) has a balm for that too: an aromatherapy massage using oil matched to the dog’s character. Yano Research Institute, in Tokyo, reckons annual sales are around JPY 1.5 trillion (EUR 1.1 bln).

You will remember the acquisition of the spectacular temple guardians by the Rijks Museum in Amsterdam in 2013, two statues dating from 1300 – 1400 that guarded a temple in Yokota, Shimane, north of Kyoto. Now the guardians with their intimidating looks have a prominent place in the Rijk Museum. In 2015 Jikke van Loon, acclaimed Dutch sculptor and artist from Amsterdam, traveled to the temple of Yokota that was once home to these impressive guardians or Ni’ozo. She found the temple – and noticing the void, she decided to recreate the temple guardians with two, equally spectacular works of the Ni’ozo ‘Dutch style’: big Delft Blue tile structures that bring back the two guardians “Issho-ni”: Returning the favour and recreating pure wisdom together.“The two Guards represent the sounds A and UN. These are the first and the last sound of the ancient ‘Sidham’ writing. From these two sounds all sounds can be created, thus representing all wisdom and compassion. Whoever walks in between the two guards will enter the portal to true knowledge. With their horrifying looks the guards will scare away all ill-intended people. Thus protecting the good against evil.”Jikke van Loon’s project will take about six months to complete. She is in Yokota, Shimane, right now for the kick-off of the project, see also attachment. After her return in December you can join the project by creating a tile in Delft Blue and thus recreating the Temple guards together. Like for every work of art money is not abundant to say the least, so any gift or contribution is welcome. You can contact her via her website www.jikkevanloon.com.

After four years writing this DUJAT News from and on Japan Newsletter, I will cease this activity for DUJAT by December 2018. I hope it gave – and gives – you insight in the most relevant developments in this great country.

Best regards, enjoy the work!

Radboud Molijn

Global Bridges BV for DUJAT / Dutch & Japanese Trade Federation

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